A life insurance company expects to make payments of $30,000,000 in one year, $15,000,000 in two years, $25,000,000 in three years, and $35,000,000 in four years to satisfy claims of policyholders. These anticipated cash flows are to be matched with a portfolio of the following $1000 face value bonds:

How many of each of the four bonds should the company purchase to exactly match its anticipated payments to policyholders?

Transcribed Image Text:

Bond Current Price 1 2 3 4 1000 980 1000 1000 Coupon Rate 0.10 0.10 0.11 0.12 Years to Maturity 1 2 3 4